How are Capital Gains Taxes Calculated on Property You Inherit and Improve

[llworking]

i disagree with llworkings take on the numbers.
An appraisers statement is legally dependable in court. A fair market valuation is not. A Realtor is not licensed to provide a true value. Their best guess is rarely objective and is legally undependable

an unrealized sale is not proof of a value. One even wonders why there was such an offer (was there an actual written and signed offer?) if you didn’t intend on selling once you assumed the role of custodian of,your sons finances.


The numbers in whole sound unrealistic.

get an appraisal of the house now if you want to know where you (your son actually) is.

I agree that a current appraisal is needed.


I disagree with you entirely that an offer to buy at 55k, prior to fixing up the house is not indicative of FMV at that time. An appraisal at that time would have been better, but 55k for a house that is now worth 275k to 300k is far more likely to be real than 18.5k

[jk]

I agree that a current appraisal is needed.


I disagree with you entirely that an offer to buy at 55k, prior to fixing up the house is not indicative of FMV at that time. An appraisal at that time would have been better, but 55k for a house that is now worth 275k to 300k is far more likely to be real than 18.5k

if there was an actual appraisal by a licensed appraiser it is going to outweigh an unfulfilled claim of an offer of $55k. An appraisers written appraisal is accepted by courts. A FMV by a real estate agent holds very little weight in court.

The kid will have to have a signed writtten offer for the $55k to even be considered. In addition, an offer is not a sale. We have no idea of any terms involved that could change the issue.

I have have my doubts that a $20k, or even $50k house plus $120k in improvements will result in a $300k home.

[llworking]

if there was an actual appraisal by a licensed appraiser it is going to outweigh an unfulfilled claim of an offer of $55k. An appraisers written appraisal is accepted by courts. A FMV by a real estate agent holds very little weight in court.

The kid will have to have a signed writtten offer for the $55k to even be considered. In addition, an offer is not a sale. We have no idea of any terms involved that could change the issue.

It sounds like he had a signed, written offer since a real estate agent brought the offer to them. In addition, it was stated that the lot alone was worth $36k. Also the fact that the executor's ability to sell the house was removed when the executor wanted to sell it for 20k is pretty telling...particularly since it was against the will of the legal guardian of the heir.

I have have my doubts that a $20k, or even $50k house plus $120k in improvements will result in a $300k home.

I can't say that you are wrong on the bolded...although I suppose it depends on the type of improvements. It does sound like some pretty major improvements were made.

[Taxing Matters]

if there was an actual appraisal by a licensed appraiser it is going to outweigh an unfulfilled claim of an offer of $55k. An appraisers written appraisal is accepted by courts. A FMV by a real estate agent holds very little weight in court.

The weight the court would give to the real estate broker or agent's opinion of the value will depend a lot on the basis for that opinion. The same is true for a written appraisal by a licensed appraiser (if the state even requires a license for appraisers). Some valuations done by appraisers are crap. Some valuations done by real estate sales people are very good. What matters in either case is how they arrived at the valuation they gave for the property.

[jk]

Virginia statute regarding appraisers sub: when not required

1. A real estate broker or salesperson licensed in the Commonwealth who, in the ordinary course of business, provides a valuation or analysis of real estate for a fee; however, such person shall not hold himself out as a real estate appraiser, and the valuation shall not be referred to as an appraisal and shall not be used in lieu of an appraisal performed by a licensed appraiser.

so, right off the law states the appraisal outweighs the fmv.


And yes, a license is required for appraised

§ 54.1-2011. Necessity for license.

A. After December 31, 1992, except as provided in § 54.1-2010 and in subsections C and E of this section, it shall be unlawful to engage in the appraisal of real estate or real property for compensation or valuable consideration in this Commonwealth without first obtaining a real estate appraiser's license in accordance with Board regulations promulgated pursuant to the Administrative Process Act (§ 2.2-4000 et s

It sounds like he had a signed, written offer since a real estate agent brought the offer to them. In addition, it was stated that the lot alone was worth $36k. Also the fact that the executor's ability to sell the house was removed when the executor wanted to sell it for 20k is pretty telling...particularly since it was against the will of the legal guardian of the heir.

A lot can actually be worth less if there is a building that needs to be razed on the lot.

Real estate agents have been known to lie. I have seen them lie about the value of a property to an owner in an attempt to get them to list the property

op said this:

After I was appointment as a custodian of all my son’s assets, a realtor company had a buyer for the house who offered $55.000 cash for it.

I don’t see that as necessarily a written offer.


And if the property was bequeathed to the child, the executor never had a right to sell the property unless the sale was required to liquidate the estate to pay estate debts.

[Taxing Matters]

so, right off the law states the appraisal outweighs the fmv.

No, it does not. All it says that real estate brokers and and sales persons when providing opinions of valuation must not refer to themselves as appraisers or to their valuations as an appraisal unless they are licensed appraisers and that an opinion of such an unlicensed real estate broker or sales person cannot be used in lieu of an appraisal.

What it does not say is that for purposes of the Virginia rules of evidence that expert opinions of real estate value must be given by licensed appraisers or that opinions of value by licensed appraisers must be given more weight than the opinions of others. Nor does anything in the Virginia Rules of Evidence say that either.

Moreover, if the purpose of the valuation is to support the tax basis in the property for a federal tax return then the Virginia law would be irrelevant to that. Only the federal rules of evidence (FRE) would matter, and the FRE does not mandate real estate valuations must be made by state licensed appraisers. Even if Virginia did mandate appraisals by a licensed appraiser must be used in its courts that law would have no effect in federal court. A federal court, and in particular the U.S. Tax Court, will be more interested in the basis for the valuation than the title of the person giving the valuation. Of course, the qualifications and experience of the person giving the valuation does matter, too, and being a licensed appraiser would help burnish the qualifications of the expert. But it certainly can be the case that an opinion of an expert other than a licensed appraiser would be the better valuation and thus adopted by the court over that of a licensed appraiser. Like I said, some appraisals by licensed appraisers are indeed crap. I know as I have seen a few of those over the course of my practice. I do not mean to insult appraisers by saying that — most appraisers do give competent valuations after all. But like in any profession, there are going to be those that are not very good and probably should not even be in that profession.

No doubt a licensed appraiser would like to think that their work would always best that of a valuation given by someone who is not licensed. And if you are a licensed appraiser, I could see that you'd want your opinions to always be given more weight. But the fact is that in court, that's not always going to be the case. When deciding on what expert I want to use when litigating valuation matters in tax cases, I'm looking for the one who can best support his/her basis for the valuation given; the title of the expert is a secondary consideration.

[jk]

No, it does not. All it says that real estate brokers and and sales persons when providing opinions of valuation must not refer to themselves as appraisers or to their valuations as an appraisal unless they are licensed appraisers and that an opinion of such an unlicensed real estate broker or sales person cannot be used in lieu of an appraisal.

What it does not say is that for purposes of the Virginia rules of evidence that expert opinions of real estate value must be given by licensed appraisers or that opinions of value by licensed appraisers must be given more weight than the opinions of others. Nor does anything in the Virginia Rules of Evidence say that either.

Moreover, if the purpose of the valuation is to support the tax basis in the property for a federal tax return then the Virginia law would be irrelevant to that. Only the federal rules of evidence (FRE) would matter, and the FRE does not mandate real estate valuations must be made by state licensed appraisers. Even if Virginia did mandate appraisals by a licensed appraiser must be used in its courts that law would have no effect in federal court. A federal court, and in particular the U.S. Tax Court, will be more interested in the basis for the valuation than the title of the person giving the valuation. Of course, the qualifications and experience of the person giving the valuation does matter, too, and being a licensed appraiser would help burnish the qualifications of the expert. But it certainly can be the case that an opinion of an expert other than a licensed appraiser would be the better valuation and thus adopted by the court over that of a licensed appraiser. Like I said, some appraisals by licensed appraisers are indeed crap. I know as I have seen a few of those over the course of my practice. I do not mean to insult appraisers by saying that — most appraisers do give competent valuations after all. But like in any profession, there are going to be those that are not very good and probably should not even be in that profession.

No doubt a licensed appraiser would like to think that their work would always best that of a valuation given by someone who is not licensed. And if you are a licensed appraiser, I could see that you'd want your opinions to always be given more weight. But the fact is that in court, that's not always going to be the case. When deciding on what expert I want to use when litigating valuation matters in tax cases, I'm looking for the one who can best support his/her basis for the valuation given; the title of the expert is a secondary consideration.

It says this (speaking of valuations established by real estate agents)

And shall not be used in lieu of appraisal performed by a licensed appraiser


In the case at hand we have an appraisal and an Fmv. Since an fmv cannot be used in lieu of an appraisal (which is what accepting the fmv and disregarding the fmv as llworking stated would be) it does give the appraisal greater weight.

A,licensed real estate appraiser can incur liability for improper appraisals. Real estate agents giving an fmv aren’t held to the same standards.

A real,estate agent is not trained to accurately establish value. The training involved is generally experience and whatever some other agent told them. It’s an informal approximation of value.

And, as i said before, the fmv is not objective. The value is given for a,secondary reason so it is not trustworthy from the get go.



But if you think so highly of a real estate fmv, buy a house and take one to a bank and borrow money based on the Fmv. It isn’t going to happen. Why? Because it is not reliable.

[Taxing Matters]

It says this (speaking of valuations established by real estate agents)

And shall not be used in lieu of appraisal performed by a licensed appraiser

Correct, it does. So where an appraisal is legally mandated by state law or where someone like a lender calls for an "appraisal" then a valuation given by someone who is not licensed cannot be offered as though it were an appraisal. So in those circumstances an appraisal by a licensed appraiser would be needed.

But the point is that the rules of evidence in Virginia do not require that an appraisal be used as evidence of value in court. If it did, then the law you cited would indeed mean that only the valuation of a licensed appraiser could be used. But the rules do not say that. Nor do they said that appraisals by licensed appraisers must be given more weight than a valuation done by someone else. So it is not the case that appraisals will always be given greater weight in Virginia courts.

And even if Virginia law did give appraisals greater weight in Virginia courts, that would mean nothing when litigating a tax case in federal court. State evidence law does not apply in federal court. It is the FRE that applies in a federal court, and the FRE does not give preference to appraisals by licensed appraisers.

So under Virginia law when an actual appraisal is called for, then only an appraisal by a licensed appraiser may be used. But you have to sort out when an actual appraisal is truly called for. Again, I'm sure that a licensed appraiser would want their work to always be given greater weight or be the only opinions allowed regarding value. But that's not what the law says. It does not give preference in every circumstance; notably, there is no preference given to appraisals in either the federal or Virginia rules of evidence.

A real,estate agent is not trained to accurately establish value. The training involved is generally experience and whatever some other agent told them. It’s an informal approximation of value.

Although that may be true of many real estate agents, there are some who are indeed trained in how to appraise property. Certainly the training and background of the person doing the valuation is a factor in considering what weight a court would give the valuation, but again the most important thing will be the basis on which the valuation was made.

But if you think so highly of a real estate fmv, buy a house and take one to a bank and borrow money based on the Fmv. It isn’t going to happen. Why? Because it is not reliable.

I did not say that in general I think more highly of a valuation done by real estate sales person. But I am saying that in some instances the valuation by a real estate sales person can be very good and in some cases is noticeably superior to an appraisal done by a licensed appraiser offered by the other side. And more to the point, I'm challenging your notion that in all circumstances the appraisal will be given more weight than a valuation done by someone who is not a licensed appraiser. As I've explained, in court the licensed appraisers opinion does not automatically get greater weight; the court looks at how good the actual work product is. For that reason, the primary thing I want in an expert is someone who can produce a good valuation work product. And for that reason when picking an expert for testifying in court, I first want to know how good his/her work product is going to be.

When buying a house, if the lender I want to use insists on an appraisal by a licensed appraiser then of course I provide that. But that is a requirement of the lender in my state, not a requirement of the law.

Let me ask you this: are you a licensed appraiser?

[jk]

In some instances a layperson has performed surgery as well or better than a trained doctor.

Obviously those instances will be in the small minority of a layperson operating.

As to some real estate agents being trained to establish the value of property; sure there are but generally they aren’t. As well, “training” can mean a lot of different things. That’s why being trained as an appraiser is deemed legally reliable while the valuation of a real estate agent isn’t. Of course there will be exceptions but when it comes to an expert witness, I’m sure you will agree the appraiser will get the nod due to their license while the real estate agent will be considered a layman and would have to prove their worth and then maybe they will be considered an expert


no I am not an appraiser. I used to be a real estate agent many years ago. I know and appreciate the difference between a trained and licensed appraiser and what a real estate agent provides as a fmv.

[A110ver]

It seems that a true price of the house in Virginia could be difficult to establish. That is why I simply compared the prices of the similar houses in the most proximate area.

Those renovated Victorian properties of similar size and age are going $100-120 for a square foot. This house is 3100 square feet.

It was neglected, looking ugly inside and out. However, the location is good.

The property’s price by the county for tax purposes before the renovation was 119,000.00 (only the lot 36,000.00). That is how I knew that the appraisal of 18,500.00 was a hoax.

The funniest thing is that my attorney also was trying to convince me to sell the house to someone he knows for 35K.

Then I got curious how much I will be offered if a realtor advertises it. So, there was an offer of 56K. The “buyer” was really persistent. I turned it down mostly because I had to go to court to sell before my son turned 18.

So, instead, I decided to keep it and fix it myself. It was all gutted. It has old good “bones”. The builders had a hard time putting nails or drilling holes in 125 years old wood that now practically turned into a rock. The house looks beautiful now. It was a biggest project of my life.

I still am not sure about the taxes if sold. I’m still debating with myself onto moving in or to sell. However, I am leaning toward the first one: to move in.

Thanks to everybody for responding.